The Hiring Incentives to Restore Employment (HIRE) Act, which was signed into law on March 18, 2010, gives employers two new tax breaks for adding to their payroll. Will this induce you to create jobs?
The HIRE Act has one incentive for expanding your staff that starts immediately and one that you may be able to claim on your 2011 return:
Immediate payroll tax relief. You won’t owe the employer share of FICA that covers Social Security taxes (6.2% of wages up to $106,800) on wages paid to anyone hired after February 3, 2010, and before January 1, 2011, who has been unemployed for at least 60 days before the start date or who worked fewer than a total of 40 hours during this 60-day period. Employees hired during this period will have to certify to you that they meet this condition.
Relief on 2011 returns. If you retain a worker for at least 52 weeks, you can claim a tax credit of up to $1,000. There is no limit on the number of employees for whom you can claim the credit.
Is this enough?
While these tax incentives are helpful, they are smaller than tax increases taking effect after 2010, especially on business owners in higher income tax brackets in light of changes made by the Patient Protection and Affordable Care Act signed into law on March 23, 2010, and other anticipated tax increases to come.
From a financial perspective, hiring new employees is wise only if their cost, which is generally their wages plus about 15%, at least equals what you expect they can earn for you in terms of productivity and sales. Keep in mind that the Patient Protection and Affordable Care Act penalizes employers with 50 or more full-time employees who fail to provide health coverage, so growing companies may aim to keep their payroll below this critical size. (Next week’s blog covers the Patient Protection and Affordable Care Act.)